Estate of Millikin v. Commissioner

A trust known as Trust B owned property that included liquid assets and a residential estate called Ripplestone. Marguerite Millikin held a power of general appointment over Trust B’s property. Any unappointed Trust B property would go to a trust known as Trust C for the benefit of other family members. When Millikin died, Trust B’s property was included in her gross estate. In her will, Millikin exercised her power of appointment to direct that her executor use Trust B’s property to pay the estate taxes owed on Trust B’s property. When the estate (plaintiff) filed its estate-tax return, it deducted administrative expenses from Millikin’s gross estate for the estimated future expenses of selling Ripplestone in order to liquidate it. The estate later sold Ripplestone. An Internal Revenue Service (defendant) audit led to disputes regarding Ripplestone, including whether the sale costs were deductible as a necessary expense of administering Millikin’s estate. The estate petitioned the United States Tax Court for relief. Applying Estate of Park v. Commissioner, the Tax Court ruled that state law alone controlled the deductibility of administrative expenses. Under Ohio law, administrative expenses were deductible if they were necessary, reasonable, and just. The Tax Court found that the sale expenses were not necessary because Trust B had $9 million in liquid assets, which was enough to pay its estate taxes. Thus, Ripplestone could have been given directly to Trust C instead of being sold. The estate appealed, arguing that Trust B had only approximately $220,000 in liquid assets, which was not enough to cover known and potential estate taxes. The Sixth Circuit panel was bound by Park and applied Ohio law to affirm the Tax Court’s ruling. The Sixth Circuit agreed to rehear the matter en banc.